1. PEO ADVISOR
RISK MANAGEMENT
January 2011
Features
Claim Reporting Lag Time: What's the big deal?
Dindi DeAngelo, MPH
Studies show that claims that are reported more than 24hrs from occurrence are 33% more costly! Timely claim reporting is so important that
every insurance carrier measures a company's ability to report claims in a timely manner as part of a company's risk performance scorecard. In-
surance carriers call that metric...Lag Time (the period of time between the date that the claim occurs and the date that the claim is reported to
the insurance carrier).
Not only does timely claims reporting keep costs down, it also:
allows for both the employer and the insurance carrier to establish a relationships with the injured parties early in the process to assure
them that the claim is being handled properly verses wondering if they should call an attorney to "help" represent their interests;
allows the insurance adjusters to rapidly investigate the claim when things are fresh in the injured employee's and witnesses' minds;
ensures that the injured parties receive their benefits quickly and accurately if the claim is found to be compensable. Faster reporting means
better care of the injured party, faster resolution of the claim, faster payments to injured and their medical providers, and ultimately, lower
costs to employers;
Click here to continue reading...
Ask the Advisor…
Payroll Inclusions and Exclusions for WC
John C. Keller, CRM ARM CIC AAI The latest question we’ve been asked is how to ex-
plain the need for a form called the ERM-14.
Throughout my work consulting with PEOs and business in all aspects of Workers Com-
pensation, I’m frequently asked a basic question about WC payroll, so I thought I’d elabo- Many times if a PEO client has multiple subsidiaries
rate for all. Most of us know that Workers Compensation premium is a function of rates and is going to maintain their own WC policy, outside
defined by insurance carriers (and approved by various state insurance departments) and the PEO master, the carrier providing the carve out
payroll by classification code. Because this is relatively straight forward, it’s easy to gloss policy will require an ERM 14.
over “what is considered ‘payroll’ for workers compensation purposes?”
Here is what it does:
Incorrect payroll has a direct impact on Workers Compensation premium, and it’s critical
Reports changes in ownership, mergers, acquisi-
that the correct payroll be used. Under-report payroll and you’ll have a large, nasty audit
tions, or consolidations
bill hit you 3 months after the policy expires (100% due in full, by the way); over-report
payroll, and you drag down your cash flow throughout the year, and then have to claw Reports ownership percentage across multiple
for your money back at the audit. Even if you “pay as you go” on a monthly reporting entities
basis, it is essential payroll is submitted only based on those categories required by your
Proves combinability
state.
Below is a comprehensive list of the inclusions and exclusions for “payroll” as defined by All entities with more that 50% common ownership
the National Council on Compensation Insurance (NCCI): are combinable for the purposes of the NCCI Experi-
Inclusions in payroll for Workers Compensation insurance: ence Modification Rate (EMR). Completing the ERM-
14 allows the NCCI to combine payroll and claims
Wages or salaries, including retroactive wages. (Check with your insurance company auditor to have history for all commonly owned companies in order
them provide state caps on individual weekly wage) to generate one EMR for the WC carrier to use in the
Commissions and draws against commissions rating of the WC policy premium
Bonuses including stock bonus plans
If you have a question you’d like answered, email the editor at:
Click here to continue reading...
RiskAdvisor@praxiom-rm.com.
© 2010 P rax iom Risk Management LLC
Prax iom Risk Management is a Certified Risk Management and Safety P rofessional firm. 01/11

2. PEO
RISK MANAGEMENT
ADVISOR
Benchmarking
The Benchmarking section is used to outline various industries in terms of their Workers Compensation risk factors, historical claims statistics, and
key loss sources. Benchmarking statistics are obtained from a variety of credible sources including the largest WC insurance companies in the U.S.
and The Bureau of Labor and Statistics. The statistics used are aggregated from all states and averaged over a 5 year rolling period. All stats be-
low are from claims incurred between 1/1/05—12/31/09.
Rate Definitions:
Frequency Rate = # non $0 claims / payroll per $1M Recordable = # OSHA recordable incidents / 200,000 hours1
Loss Rate = Total Incurred $ / payroll per $100 DART = incidents w/ Days Away, Restricted duty or job Transfer / 200,000 hours
This month we dive into the white collar professional services of Legal , Architectural, and Accounting Services. In the white collar professional
service industry, you’ll find very low frequency and loss rates and several predictable loss sources.
SIC Industry 8111—Legal Services
As of: 10/31/2010 Average % SIC 8111 - Top 5 Loss Sources % Total Incurred
Period: 1/1/05 - 12/31/09 Loss Sources Inc. % Inc Claims All Other
Repeated
Vehicles 19%
Trauma
Average Incurred $7,262 Repeated Trauma $ 8,843 24.5% 20.1% 6% 25%
Average Paid $5,375 Slip/Fall - Same Level $ 8,665 23.1% 19.4% Materials
Handling Slip/Fall -
% claims > $10,000 11.8% Slip/Fall - Elevated $ 9,580 13.4% 10.2% 13% Slip/Fall -
Elevated
Same Level
23%
14%
% Incurred >$10,000 90.6% Materials Handling $ 6,446 13.2% 14.9%
% claims >$25,000 6.9% Vehicles $ 15,388 6.3% 3.0%
% Incurred >$25,000 79.7% All Other 19.4% 32.4%
NAIC 541100
Key Metrics BLS Stat 2005 2006 2007 2008 2009
Frequency Rate 0.07 Recordable 0.7 0.6 0.6 0.6 0.6
Loss Rate $0.03 DART 0.2 0.2 0.3 0.3 0.3
SIC Industry 8712—Architectural Services
As of: 10/31/2010 Average % SIC 8712 - Top 5 Loss Sources % Total Incurred
Period: 1/1/05 - 12/31/09 Loss Sources Inc. % Inc Claims All Other
Struck By/Against
16%
Average Incurred $2,951 Slip/Fall - Same Level $ 4,613 29.7% 19.0% 9% Slip/Fall -
Same Level
30%
Average Paid $2,875 Materials Handling $ 4,958 19.4% 11.6%
Slip/Fall -
% claims > $10,000 5.1% Vehicles $ 5,983 15.0% 7.4% Elevated
Materials
10% Vehicles Handling
% Incurred >$10,000 83.0% Slip/Fall - Elevated $ 10,688 10.0% 2.8% 15% 20%
% claims >$25,000 3.7% Struck By/Against $ 4,291 9.4% 6.5%
% Incurred >$25,000 75.2% All Other 16.4% 52.8%
NAIC 541310
Key Metrics BLS Stat 2005 2006 2007 2008 2009
Frequency Rate 0.21 Recordable 0.6 0.7 0.3 0.5 0.4
Loss Rate $0.40 DART 0.3 0.3 0.1 0.2 0.2
1—200,000 hours represents the amount of time worked by 100 WSE in one year
© 2010 P rax iom Risk Management LLC
Prax iom Risk Management is a Certified Risk Management and Safety P rofessional firm. 01/11

3. PEO
RISK MANAGEMENT
ADVISOR
Benchmarking cont...
Rate Definitions:
Frequency Rate = # non $0 claims / payroll per $1M Recordable = # OSHA recordable incidents / 200,000 hours1
Loss Rate = Total Incurred $ / payroll per $100 DART = incidents w/ Days Away, Restricted duty or job Transfer / 200,000 hours
SIC Industry 8721—Accounting Services
As of: 10/31/2010 Average %
SIC 8721 - Top 5 Loss Sources % Total Incurred
Period: 1/1/05 - 12/31/09 Loss Sources Inc. % Inc Claims
All Other Slip/Fall - Same
Average Incurred $8,985 Slip/Fall - Same Level $ 10,871 22.7% 18.7% Caught 25% Level
In/Between 23%
Average Paid $7,044 Struck By/Against $ 7,429 18.3% 22.1% 5%
Struck
% claims > $10,000 10.3% Materials Handling $ 11,600 16.4% 12.7% By/Against
Slip/Fall -
18%
% Incurred >$10,000 92.0% Slip/Fall - Elevated $ 17,544 13.4% 6.9% Elevated
13%
% claims >$25,000 6.6% Caught In/Between $ 10,676 4.6% 3.9%
Materials
% Incurred >$25,000 85.4% All Other 24.7% 35.8% Handling
16%
NAIC 541200
Key Metrics BLS Stat 2005 2006 2007 2008 2009
Frequency Rate 0.20 Recordable 0.9 0.8 0.8 0.8 0.8
Loss Rate $0.37 DART 0.4 0.3 0.3 0.2 0.2
We want your input.
We’re looking for PEO Executives and Risk Managers to advise us by providing feedback in our latest poll. Results posted next months
What is the most important concern for a PEO's Risk Management program in 2011?
Maximizing Profit of the WC Program?
Obtaining "A" Rated WC Coverage?
Reducing Pre-Accident Claim Frequency?
Reducing Post-Accident Claim Cost?
Administering Multiple Client Policies
Please click here to select your answer and leave a comment. Poll is hosted in LinkedIn.
If you haven’t already joined, there is now a group on LinkedIn dedicated to PEO Risk
Management. All PEO Executives and Risk Managers are encouraged to join and
participate in the online discussions. Or, you can simply follow along with the news posts that relate to PEO,
Risk Management, and Workers Compensation.
Click here to go to the PEO Risk Management group on LinkedIn and join.
© 2010 P rax iom Risk Management LLC
Prax iom Risk Management is a Certified Risk Management and Safety P rofessional firm. 01/11

4. PEO
RISK MANAGEMENT
ADVISOR
Measuring PEO Performance PEO Risk Management best practices are
split into 5 primary categories. This
Our Measuring PEO Performance section is dedicated to those month we outline the second of the five:
PEOs that manage their Workers Compensation program through a
Large Deductible or captive arrangement, and utilize positive re- Client Service Contracts
sults as a profit center. Each month we highlight different per-
There are 6 core elements to a client service agreement (CSA) which
formance metrics that should be used in measuring WC perform-
should be incorporated for all PEO clients:
ance.
Drug-Free Workplace (DFW) – the CSA should require the Client to
Frequency Rate
cooperate with the PEO’s requirements in establishing and imple-
Frequency rate is a critical measure of the amount of claims either menting a drug-free workplace policy. Here is a link to a nice guide
the PEO or individual PEO clients experience. It is usually put in a for establishing a DFW that was created by the State of Florida Divi-
standard rate basis (either payroll or hours worked) so that com- sion of Workers’ Compensation. Other states may have their own
parisons can be made between firms of all sizes. guides and requirements, so just use this as an example.
The two most common frequency rates are: Effective Employment Date – the CSA should provide a procedure for
establishing the beginning date of employment for existing employ-
# Non-$0 claims / payroll per $1M
ees and also delineate when all future hires are deemed to be co-
# OSHA recordable incidents / 200,000 hours1 employees of the PEO.
Termination – the provision must give the PEO the right to terminate
a client for:
Workers Compensation Highlights Failure to pay PEO for services
Failure to properly report all time worked and wages of employ-
Florida WC rates increasing in 2011
ees
Florida is a hotbed for domiciled PEOs and as an operating
state for other PEOs. We know that it’s critical to have the Failure to disclose key information regarding the nature of work
most up to date WC rates in the pricing of PEO services, so duties, business operations and locations of workers
here is a short article outlining the changes effective 1/1/11 in Changes in business operations, financial conditions, or work-
the state of FL….
force that materially change the cost or risk of providing the
promised services
Since Florida is one of only a few workers Non-compliance with the terms of the CSA or workplace policies
compensation administered pricing states in related to employment practices , safety and
the nation, rate changes approved by the Of- return-to-work, or timely injury reporting
fice of Insurance Regulation (OIR) have an
immediate impact on the majority of busi- Notice of Termination – the CSA should include a
nesses operating in the state. Rate changes are effective statement that in the event of client termination, the
January 1st of every year in Florida, and every year since the PEO shall provide all employees with immediate writ-
legislative reform in 2003, Florida has seen nothing but de- ten notice of termination.
creases.
Client Cooperation and Compliance – the CSA should have a require-
Click here to continue reading… ment that the Client cooperate with the PEO in implementing and
enforcing safety and risk management policies and require client’s
Click here for a PDF of the new 2011 FL rates by code...
compliance with applicable state and federal regulations.
Records and Worksite Inspection – The CSA must provide the PEO
and its workers’ compensation carrier the right to inspect the clients
records and worksite
© 2010 P rax iom Risk Management LLC
Prax iom Risk Management is a Certified Risk Management and Safety P rofessional firm. 01/11

5. PEO
RISK MANAGEMENT
ADVISOR
With PEO Risk Management professionals averaging 20 years of experience
and encompassing a broad range of industry expertise, Praxiom Risk Manage-
ment is committed to providing a wide range of resources to help PEOs miti-
gate risk and grow their Workers Compensation profit center.
The PEO RM Advisor is a monthly e-newsletter designed to keep PEO execu-
tives and Risk Management professionals informed of relevant topics in the
area of PEO risk management. Sharing information and best practice through
e-newsletters is one of the many ways we help support PEO organizations'
risk management efforts.
If you would like to contribute industry specific content or articles for publica-
tion in the areas below, you may submit them to the Editor at:
RiskAdvisor@praxiom-rm.com.
Loss Control
Claims Management
Performance Metrics
RM Information Systems
Policy Administration
Carrier Relationships
Industry Certifications
Up Next…
We’ll continue with our performance benchmarking of professional
service companies with a look into the WC results of:
Engineering Firms—8711
Skilled Nursing Care Facilities—8051
© 2010 P rax iom Risk Management LLC
Prax iom Risk Management is a Certified Risk Management and Safety P rofessional firm. 01/11